Friday, January 09, 2009

Clever Bankers

I just read something wonderful in this analysis about why the global economy is in its current state.


"To put it in crude terms, for much of the past decade, millions of Chinese slaved away on near subsistence wages and still managed to save, both as a nation (China swanks £1,400bn in foreign exchange reserves) and as individuals. And to a large extent they were working to improve our living standards, because they made more and more of the stuff we wanted at cheaper and cheaper prices - and clever bankers took their savings and lent the cash to us, so that we could buy the houses we cherished, the cars we desired, the flat-screen TVs.
This imbalance - between the savings of China, India, Japan and Saudi and our indebtedness, between their massive trade surpluses and our deficits - was never sustainable. At some point, the Chinese were bound to say, “we’d like some of the cake now please, which means you’ll have to have a bit less”.
Tragically, they toiled for our prosperity – or we lived high on the hog while they fattened the pigs for us – for too long. Which is partly why the return to equilibrium, to a more balanced global economy, is happening in a horribly painful way that's impoverishing millions of people.
For me, therefore, the most important event of the past week was the chastising of the US Treasury Secretary, Hank Paulson, by Zhou Xiaochuan, governor of the Chinese central bank. Zhou said that "over-consumption and a high reliance on credit is the cause of the US financial crisis" and "as the largest and most important economy in the world, the US should take the initiative to adjust its policies, raise its savings ratio appropriately and reduce its trade and fiscal deficits."
This seemed a pretty unambiguous statement by the Chinese that they're no longer prepared to finance the spendthrift ways of the US and UK: they don't want to lend more and they want to be confident that what they have lent won't disappear in a puff of bad debts and inflation.
So the big question is how much debt will"
Robert Peston - BBC's Business Editor

The rest is in this pdf file

I hope you enjoy reading it.

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